Australian Automotive Aftermarket Association
Summary:
Economic Structure and Performance of the
Australian Retail Industry
Productivity Commission Issues Paper
The inquiry will provide an insight into the challenges faced by Australian
retailers in an increasingly globalised shopping world. The media statement
highlighted the importance of online retailing for the future of the industry. It
noted that online retailing is here to stay and that the Commission will
consider the role it plays in providing consumers with greater choice, access
and convenience. The Commission is to report its findings in early November
2011.
Trends in retail trade and drivers of structural change
The Commission is examining the trends in retail trade to determine factors
affecting growth (-0.2% growth for our sector, 0% price movement for our
goods). Statistics also show increasing profitability of retail trade. They are
seeking evidence to show the extent that competition from overseas and
Australian online retailers is affecting revenue growth.
Online trading: opportunities and challenges
The Commission is examining the factors that affect our sector’s take-up of
online trading. The Commission recognises that there are challenges to
maintain competitiveness, as well as opportunities to expand existing
customer bases. The commission is also examining the causes and effects of
price differences between overseas online providers and the prices domestic
retailers have to pay when sourcing identical or very similar products from
domestic wholesalers and importers. The Commission understands that there
may be risks to consumers in relation to online trading.
Appropriateness of current indirect tax arrangements
The Commission will examine the sustainability and appropriateness of the
current indirect tax arrangements, with particular reference to indirect taxes
and duty on imported goods. The current threshold level for low value imports
below which the Government will not seek to collect import duty and GST is
$1000. The commission is also examining the effect of planning and zoning
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systems, retail trading restrictions, retail tenancy reforms, market structure
and labour market issues that would support more competitive outcomes in
Australia’s retail markets.
The Commission has released the issues paper to assist individuals and organisations to prepare
submissions to the inquiry. It contains and outlines:

the scope of the inquiry

the Commission’s procedures

matters about which the Commission is seeking comment and information, and

how to make a submission.
Participants should not feel that they are restricted to comment only on matters raised in the issues
paper. The Commission wishes to receive information and comment on issues which participants
consider relevant to the inquiry’s terms of reference.
Key inquiry dates
Receipt of terms of reference:
Due date for submissions:
Release of draft report:
Draft report public hearings:
Final report to Government:
3 February 2011
20 May 2011
early August 2011
early September 2011
early November 2011
Submissions can be made
By email:
By post:
retail@pc.gov.au
Retail Inquiry
Productivity Commission
GPO Box 1428
Canberra City ACT 2601
By fax:
02 6240 3311
Contacts
Administrative matters:
Other matters:
Freecall number for regional areas:
Maggie Eibisch
Les Andrews
1800 020 083
Website
www.pc.gov.au
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Ph: 02 6240 3206
Ph: 02 6240 3251
Australian Automotive Aftermarket Association
Response:
Economic Structure and Performance of
the Australian Retail Industry
Productivity Commission Issues Paper
The Industry
The Australian Automotive Aftermarket Association plays an important role in the
recognition, development and support of the automotive aftermarket industry. AAAA
represents over 1,300 member companies in the Australian aftermarket including
manufacturers, re-manufacturers, wholesalers, distributors, importers, resellers and
retailers of automotive parts, accessories, tools and equipment as well as companies and
consultants who service the automotive aftermarket industry.
The term ‘Independent Aftermarket’ refers to replacement/enhancement parts as opposed
to Original Equipment (OE) used by motor vehicle manufacturers. End users in the
independent aftermarket are specialist retailers, mechanics and households, who use those
parts for repair, replacement and performance enhancement purposes.
Parts manufacturers and distributors supply the domestic and global market with
components for use in new vehicles as well as for replacement and vehicle
enhancement/customisation purposes. The independent aftermarket is predominately
Australian owned and operated, with companies operating in specialist markets i.e.
performance improvement, emissions control, stability, safety, replacement parts, and
collision repair and 4WD component parts. The industry providing specialist replacement
and enhancement products (the independent aftermarket) is expanding, particularly in the
four wheel drive, sport utility and light commercial vehicle segments.
In Australia, 35 Tier 1 companies supply 75% of manufactured components to the car
makers. In the independent aftermarket industry there are over 300 component producers
& distributors and over 5,000 parts dealers.
48% of all aftermarket component products are sold by Parts & Accessories retailers. The
car manufacturers equate to 20% of this market. The independent aftermarket parts
dealers sell directly to the public or to mechanics. There are over 5,000 parts dealers in
Australia. There are over 20,000 mechanical workshops, car electrical services companies
and car maintenance companies in Australia. Australian Motor Vehicles will have an
average age of service of 10.7 years in 2015, up from 10.0 years currently. 46% of
aftermarket retail dollar is spent on Passenger Motor Vehicle specific products. The
remainder is spent on 4 wheel drive vehicles, sports utility vehicles and light commercial
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vehicles. It is estimated over a 10 year period that the money spent on replacement parts
and maintaining a vehicle will be one and a half times the original purchase price.
Companies in this industry wholesale new motor vehicle parts and accessories. These
include parts such as batteries, accessories such as car radios, as well as motor vehicle tyres.
Parts and accessories are mainly sold to motor vehicle manufacturers, parts retailers and
mechanics.
Motor vehicles tend to be held longer during periods of slow growth and second-hand parts
are sought after. Economic slowdowns lower demand from both the original equipment
and the independent aftermarket sectors. However, as more people look to keep their
existing vehicles instead of trading them in for new ones, demand for car parts increases, as
increased maintenance requirements are being pursued. As the retailing consumer holds a
greater proportion of market share than the manufacturing segment, this is creating an
overall positive growth environment. Over the next five years industry revenue will rise by
an estimated 0.3% annually to $11.53 billion. Over the five year period, the demand for
new parts will also be supported by a growing stock of motor vehicles on Australian roads.
Globalisation and Increasing Online Trading
Sixty per cent of sales in the independent aftermarket sector in the United States are now
undertaken online. With online traders able to offer cut price deals due to better economies
of scale rates and cheap freight deals, Australian retailers are feeling the impact, which has
only been magnified by the strength of the Australian dollar. Mass email campaigns from
online traders coupled with the low cost alternative product are seeing local traders
struggling to compete after spending great amounts on marketing and promotions. Profit
margins for local traders are on the sharp decline as they try to remain price competitive
with the online market and consequently; retail jobs are in jeopardy.
Competitiveness is extremely difficult, with opportunities limited to when a manufacturer
will only supply via a distributor agreement which has a strict no internet selling policy. They
are then subject to competition via parallel imports from overseas based distributors taking
advantage of the high Australian dollar. Manufacturers of diagnostic equipment are trying
to address this issue by programing software that will only run in the local Oceania region.
Not unlike some DVD players, this means the localised software will only run after
recognising a specific serial number. Other options being pursued by local retailers to
remain competitive are embedding Australian only data into products and offering bonus
extra time periods. However, this is all undermined by the fact local retailers have
significantly higher expenses including accommodation, transport and paying full time
engineers.
Taxes and Fees
Private importers are not subject to the same taxes and fees and local retailers, creating an
uneven playing field in which the domestic businesses struggle to exist. Import fees which
online retailers are exempt from include; quarantine inspection fees, customs inspection
fees and security fees. The current GST threshold of $1000 sees online traders able to avoid
paying GST and offer their goods at a minimum costs, meanwhile local retailers are forced
to pass on costs of up to 15% in charges, tax and duties onto the consumer. Already,
retailers are noticing a drop in sales of products valued at under $1000 due to the online tax
exemption. In order to level the playing field, and enable Australian retailers to remain
competitive with online traders, a lowering of the GST threshold to $100 is needed.
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Safety
A key issue of concern to the Industry is safety; both physical and economic. The increase in
online retailing limits the ability to monitor the quality of products being brought into the
Australian market. Australian manufacturers pride themselves on being world leaders in
product quality and safety, with Australian standards being some of the most stringent in
the world.
While local traders are subject to these strict product safety standards, imported online
goods are not bound by the same regulations, and thus we are left with a distorted market
containing a mix of both safe and unsafe products. When considered alongside the fact that
unlike local traders, online importers to not carry liability insurance; consumers are left at
great risk of buying defective and sometimes dangerous product without any warranty
protection.
The great influx of unregulated, overseas products leads to a DIY culture where consumers
are placed at risk from poor quality, non-conforming products, some of which are critical
safety components. Motor Vehicle components can be and are dangerous when not
installed correctly. While traditionally, qualified, expert technicians fit controlled, quality
assured aftermarket parts, the online boom has created an environment where untested,
cheap imports are being installed in backyard jobs by consumers with no expertise or
training.
The Federal government’s Australian Consumer Law, recently introduced to supplement and
solidify the Trade Practices Act has imposed a new, extensive set of consumer guarantees
on the sale of goods; guarantees which are not necessarily afforded to buyers of cheap
online imports. The consumer guarantees include that in all transactions goods are of
acceptable quality, be fit for purpose, match their description and be rendered with due
care and skill. Consumers purchasing goods through back-door online retailers will not be
protected by the Australian Consumer Law and therefore be placed at risk. The law was
introduced in order to ensure that only the highest quality of goods are sold in Australia,
and whilst local distributors comply, the online boom will all but leave the law impotent.
Simply put, the current situation places lives in jeopardy. Lives which local manufacturers
have spent exponential amounts of money and time in research and development to ensure
are never put at risk. It is important to note that not all online traders operate in this
reckless manner. There are numerous genuine online operators with registered businesses
who are subject to tax, and trade according to Australian rules and regulations.
Nevertheless, there is also a rapidly increasing culture of unreliable, dishonest sellers
operating without proper authorisation and not adhering to vital Australian safety
standards. It is these fly-by-night traders who need to be regulated. The recent ATO
crackdown on this type of operation is a step in the right direction, however this needs to be
further enforced, specifically in the automotive aftermarket, with reckless traders held to
account for their dubious dealings.
Concluding Remarks:
In an increasingly technological world, AAAA understands and embraces the increased role
of online trading. However, as has been done with every advance in trading throughout
history, this is a step that must be made with proper caution. Allowing free reign on a
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market where products are unsafe, unregulated and untrustworthy is simply not a path our
country can afford to take, especially when it is at the expense of local traders, means a loss
of jobs at home, and may jeopardize the safety of road users. The realm of online trading is
a positive but dangerous one, and one that though it might be inevitable, should be
diligently addressed and properly regulated; for the good of both Australian retailers and
consumers.
AAAA would welcome the opportunity to meet with members of the Productivity
Commission to discuss the matter further or to provide more information about the impact
of internet selling on the automotive aftermarket retail sector.
I can be contacted on (03)9545 3333 or by email: execdir@aaaa.com.au
Kind regards
Stuart Charity
Executive Director
20 May 2011
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